First insight – the new UAE Federal Arbitration Law and the future for UAE arbitration

On 3 May 2018, HH Sheikh Khalifa bin Zayed Al Nahyan, the President of the United Arab Emirates, issued Federal Law No. 6 of 2018 promulgating the country’s much anticipated new Federal Arbitration Law (the “New Law“). The New Law, which is heavily based on the UNCITRAL Model Law on International Commercial Arbitration, will replace and supersede Articles 203 to 218 of the Civil Procedures Code (Federal Law No. 11 of 1992 (as amended)) which currently govern arbitrations seated onshore in the UAE (the “Civil Procedure Code“). The New Law applies to any arbitration conducted in the UAE, unless the parties have agreed that another law should apply, (Article 2) and to ongoing arbitration proceedings, even if the arbitration agreement was concluded before the Law came into effect (Article 59).

The New Law will take affect one month after its date of publication in the Official Gazette. This article highlights some of the most significant developments and identifies key similarities and differences between the New Law and the UNCITRAL Model Law on which it is based.

Significant developments

Arbitration Agreement

The New Law confirms the current requirement that an agreement to arbitrate must be in writing. However, consistent with the UNCITRAL Model Law, Article 7 expressly provides that the arbitration agreement may be made by an exchange of communications, including by modern methods of electronic messaging such as email. Article 5 also provides that the agreement to arbitrate may be entered into before or after a dispute has arisen, in a separate document, or incorporated by reference.

Pursuant to Article 4(1), in order to be valid, the arbitration agreement must be entered into by a natural person who has legal capacity to dispose of his rights or, on behalf of a company, by a representative with specific authority to arbitrate. Whilst it would appear from Article 53(c) that the law governing a representative’s capacity will be the law applicable to that particular company, this is by no means clear. Accordingly, we would continue to advise companies entering into arbitration agreements that are subject to the New Law, to execute a power of attorney expressly granting the signatory the authority to enter into the arbitration agreement.

Article 6 of the New Law now confirms that the agreement to arbitrate is severable and will be treated as an agreement independent of the other terms of the contract, irrespective of whether the main contract is voided, breached or terminated between the parties.

Jurisdiction

Article 19 of the New Law grants the Tribunal the authority to rule on its own jurisdiction, thereby recognising the principle of kompetenz-kompetenz. A party is entitled to challenge the Tribunal’s preliminary decision on jurisdiction before the courts, although such an appeal must be made within 15 days from the Tribunal’s decision.

Under Article 20 of the New Law, a party that intends to argue that the Tribunal has no jurisdiction must do so by no later than the deadline for the statement of defence. If a party wishes to raise a defence that the claims are outside the scope of the arbitration agreement, that defence must be asserted immediately in response to the claims being raised. Article 20 allows the Tribunal to waive the time limits set out provided there is reasonable justification for the delay.

Interim Measures / Relief

In a welcome development, the New Law expressly recognises the authority of arbitral Tribunals to order interim or conservatory measures and to issue interim or partial awards.

Article 21 of the New Law sets out a non-exhaustive list of provisional orders that may be issued by the Tribunal, which mirrors the Model Law and includes measures preserving assets and funds out of which a subsequent award may be satisfied, maintaining the status quo pending determination of the dispute, and orders preserving evidence that may be relevant and material to the resolution of the dispute. A party issued with a provisional measure may request a court to order the execution of the same under Article 21.

Unlike the UNCITRAL Model Law, the New Law does not set out any pre-conditions for the requesting party to satisfy before a Tribunal grants interim measures. However, Article 21(2) does provide that the party requesting the interim measure may be required to provide security to cover the costs of those measures, and may bear the damages for enforcement of such measures if the Tribunal subsequently decides that the party was not entitled to the remedy.

In addition, Article 18 of the New Law grants the court jurisdiction to order interim or conservatory measures in support of current or potential arbitral proceedings as is considered necessary.

Administrative Efficiency and Procedure

Articles 11 to 17 set out the procedure for appointment of the Tribunal, and challenges thereto, along the same lines as set out in the UNCITRAL Model Law.

Also in accordance with the Model Law, Article 28 provides that the Parties are free to agree the place of the arbitration and that the arbitral Tribunal may convene meetings and hearings anywhere it considers appropriate, including venues outside of the UAE, and by electronic means. Moreover, Article 41(6) of the New Law expressly provides that arbitration awards will be deemed signed at their seat regardless of where the signing actually takes place, including if that signing is completed in counterpart and electronically. This is a welcome development for arbitrators who were previously required to be physically present in the UAE seat in order for a domestic award to be validly signed.

Absent an agreement between the parties on the length of time for issuing the final award, as is the position under the Civil Procedure Code, the New Law sets a time limit of six months from the date of the first hearing for the issuance of an award. However, Article 42 of the New Law grants the arbitral Tribunal the authority to extend the deadline for up to an additional six months, unless the parties agree a longer extension. Any further extension of time beyond this period must be by way of a court order at the request of the Tribunal or a party. It should be noted that failure to issue an award within the specified time frame is a ground for setting aside the award under Article 53(1).

Under Article 46 of the New Law, the Tribunal has the power to award costs of the arbitration, although the law is silent on the award of parties’ costs.

Article 48 confirms that the arbitral award will remain confidential unless both parties agree otherwise in a written agreement.

Enforcement and Challenge of the Arbitral Award

Under the New Law, the procedure to enforce an arbitration award in the UAE has been significantly streamlined, increasing the ease and ability with which foreign arbitration awards can be enforced in the UAE as well as reinforcing the New Law’s alignment with the New York Convention.

Article 52 states that an arbitral award made in accordance with the New Law has the same binding force on the parties as a court ruling. The award can be enforced directly before the UAE federal or local Courts of Appeal (rather having first to go through the Court of First Instance) and an enforcement order should be given by the Court within 60 days of a request for enforcement under Article 53.

The grounds for challenging an award are contained in Article 53 and are similar to those found in the UNCITRAL Model Law. Whilst these grounds appear to restate the position set out in Article 216 of the Civil Procedure Code in broader detail and scope, and mirror the grounds for refusal to enforce an arbitral award as recognised by the New York Convention, there is the notable omission of the ability to refuse recognition on the basis that the award may not yet have become binding on the parties, or has been set aside/suspended by a competent authority of the country in which, or under the law of which, that award was originally made – this being a recognised ground under the New York Convention.

Actions to set aside the award are time-barred after 30 days from the date of notification of the award. Notably, under Article 56, challenging an award does not stay its enforcement, unless the Court orders the stay on the application of a party showing good cause. The Court’s enforcement decision may be appealed within 30 days under Article 57.

Conclusion

According to Sheikh Mohammed Abdullah Al Nuaimi, chairman of the Federal National Council’s (“FNC”) constitutional, legislative affairs and appeals committee, the New Law is designed to support the UAE’s unprecedented economic growth and ensure a secure environment for investments within the UAE economy. The New Law’s alignment with international standards and best practice will undoubtedly assist in building on the UAE’s reputation as the preferred seat for international arbitration in the MENA region and position the UAE as a global arbitration hub alongside Singapore, London and New York.

The law runs to 61 Articles and has yet to come into force. This means that there will, no doubt be many developments in coming months as parties become familiar with its operation, and as tribunals and courts become familiar with its drafting. However, the fact that the New Law is a very significant, and very positive, development is abundantly clear.

If you would like further information regarding the new arbitration law and how its enactment may affect you or your business, please contact Craig Shepherd (Partner), Stuart Paterson (Partner), Caroline Kehoe (Partner), Anna Wren (Senior Associate), or your usual Herbert Smith Freehills contact. To sign up to Middle East Disputes e-bulletins, please click here.

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The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.Herbert Smith Freehills LLP is authorised and regulated by the Solicitors Regulation Authority.